Raffles Medical Group - CGS-CIMB Research 2018-10-29: 3Q18 More Pain Before Gain

Raffles Medical Group - 3Q18: More Pain Before Gain

While we expect little growth from Singapore operations, we are positive on its China expansion plans and the new insurance arm in the longer term.

Maintain HOLD due to possible higher start-up losses in the coming quarters.

3Q18 in line

Raffles Medical Group reported flat y-o-y core net profit of S$16.4m in 3Q18, which formed 26%/25% of our/consensus full-year forecasts.

Revenue from healthcare services increased 8.0% y-o-y thanks to the addition of corporate clients and a new government screening contract; however, hospital services revenue (-3.8% y-o-y) remained under pressure from lower foreign patient demand, and refurbishment of current inpatient facilities. The new inpatient wards will expand existing bed capacity by another 63 beds.

While 3Q18 topline rose 1.2% y-o-y, this was offset by more insurance claims, as well as higher expenses related to depreciation, maintenance and financing.

Less than 20% of the Raffles Extension has been leased out, amidst ongoing efforts to curate the tenant mix. We project greater rental contribution in FY19F.

All eyes on Chongqing hospital opening

According to the management, the Chongqing hospital opening, barring regulatory approvals. Staff hiring is in full swing, with c.10050 will be clinical staff.

Its earlier guidance of S$810m EBITDA loss in the first year of based on the opening of 100-200 beds in the initial phase.

Insurance could become more meaningful in longer term

While 3Q18 saw little contribution from the recently launched Raffles Integrated Shield Plan, there was good progress with a couple of hundred sign-ups.

By partnering with China Taiping Insurance Group, Raffles Medical Group intends to leverage on its expertise and network of over 450k agents in China to jointly develop and sell insurance products and healthcare solutions, to both individuals and groups.

Maintain HOLD

The group continued to record positive operating cashflow (3Q18: S$31.7m, 3Q17: S$24.5m) and remained in a net cash position as at end-3Q18.

No forecasts and SOP-based Target Price of S$1.19, but we see earnings from lower opex, depending on the timing of the new hospital opening. Our HOLD rating is premised on upcoming gestation expansion.

Upside/downside risks could stem from overseas execution and regulatory changes.

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